[Click eStock] "KMw, Expected Earnings Decline... Q3 Earnings Recovery Forecast"

Shinyoung Securities Report

[Asia Economy Reporter Minji Lee] Shin Young Securities maintained a buy rating and a target price of 84,000 KRW for KMw on the 23rd.

KMw's sales in the fourth quarter of last year recorded 59.2 billion KRW, which was 36% lower than the market consensus of 91.9 billion KRW. Operating loss was 1.4 billion KRW, about 114% less than the market expectation of 10.5 billion KRW.

Seonghun Lee, a researcher at Shin Young Securities, said, "Since the results falling short of the fourth-quarter consensus were already anticipated, the stock price adjustment after the earnings announcement during trading was limited to 3%. Sales significantly declined due to the drop in the KRW-USD exchange rate and delayed recovery in the industry."

Poor performance is expected to continue until the second quarter of this year. From the third quarter, performance recovery is expected through overseas orders. KMw typically aims for a gross profit margin (GPM) of 30% when securing orders. Despite being able to defend against sales decline by exporting various products based on superior technology and prepared infrastructure compared to competitors, the company did not aggressively pursue orders last year.

Researcher Lee said, "Since 2018, the proportion of domestic clients has continuously decreased while the share of overseas clients has gradually increased. At the time when overseas 5G investment is expected to accelerate in the third quarter of this year, selective orders for high value-added products will be secured from global local network operators such as DCI Network and NEC."

Currently, the company's price-to-earnings ratio (PER) stands at about 37 times, which is a 23% premium compared to 30.2 times in 2019. At that time, KMw was the only equipment company to supply 5G radio systems, receiving a high premium.

Lee explained, "With the expected 5G infrastructure construction in overseas markets this year, if the company secures product orders from various global clients based on excellent technology, it could receive a premium PER compared to 2019."